Terrorists attack the heart of capitalism

Correspondents Report - Sunday, 16 September , 2001 8:22

Reporter: Matt Peacock

HAMISH ROBERTSON: The highjacked airliners which crashed into the World Trade Centre in a very real sense attacked the heart of world capitalism.

We have yet to hear how many CEO's may have been killed, but we do know that many leading financial companies were either wiped out or effectively paralysed by the attack.

It's only been a sustained campaign by the world's central bankers over the past few days that's prevented a serious collapse of confidence.

And it won't be until tomorrow - when the New York exchanges reopen - that the true impact on world markets will be known.

This report from Matt Peacock in London.

MATT PEACOCK: It was the nightmare scenario. An already shaky world economy apparently slipping into recession - and then this. And the very real dangers were quickly grasped by the world's central bankers and finance ministers. British Chancellor Gordon Brown:

GORDON BROWN: "There can be no greater assault on a financial community than right at the heart of the American financial community to have this terrorist attack, and of course there have been many lives lost of people who are expert - some of them Britons - in the financial community. But we are determined to take what ever action is necessary to maintain the conditions for stability and growth. We've already ensured that the financial markets in Britain and across Europe stayed open, there is a determination to work with OPEC to ensure that oil supplies are at a level that are necessary, and that we don't see the hikes in oil prices we've seen in previous difficulties."

MATT PEACOCK: Then, there was an even more unusual reaction by the surviving traders in places like London. Banking editor for the Financial Times, John Willman:

JOHN WILLMAN: "I think people have been so shocked about what's happened, that actually very little's happening even in domestic markets. I mean, investors aren't cashing in their investments in a big way, and even more interesting, professional investors, the hedge funds, the people who normally exist to take advantage of the opportunities that arise in situations like this, just haven't been doing it - they haven't been doing it. There's almost a gentleman's agreement not to make money out of this situation."

MATT PEACOCK: That, says Mr Willman, was unprecedented. The first week saw unexpected stability, although shares and the value of the US dollar began to drop more by the week's end, with nervousness of the imminent US reopening and likely military action. Nonetheless, you'd have to say - so far, so good.

JOHN WILLMAN: "It could have been an immense shock for the world's financial system. You've got some of the world's biggest and most important banks based in and around the World Trade Centre; they will owe money to people, people will owe money to them. If their systems have collapsed, which some of them may have done, then people will be left owed large sums of money, and you can see a sort of banking crisis starting."

MATT PEACOCK: What sort of sums are we talking about here, though?

JOHN WILLMAN: "Well, for example, foreign exchange dealings, you know, billions of dollars of foreign exchange is traded, also shares, bonds, futures, derivatives, all sorts of things are traded across borders - it might just have been that when those awful attacks happened on Tuesday that somebody had just taken out a very big position, and then the firm with which they did the position doesn't exist any more, or has no records left, that they know whether they should be paying somebody. What's fascinating is as far as we can see so far, there's no evidence of that. Payments seem to have gone on fine, settlements have gone on fine, and there've been no major dislocations to the system."

MATT PEACOCK: And why is that? I mean everybody has presumably become extremely focussed on this?

JOHN WILLMAN: "Yes, I think the world's regulators have become very practised at dealing with this sort of thing now, and in most countries you'll have a central bank, you'll have a finance ministry, probably some financial regulators. And I think over the years they've got very used to working together to make sure that things like this don't happen.

I think perhaps the most important thing that happened immediately was that the central banks of all the main countries pumped a lot more money into the system, so that nobody should be short of a bob or two when it came to settling things, and also basically said to the various financial firms, keep things going - if you've got a problem, come and see us, we'll help you, you know, there's no reason why anything shouldn't be paid."

MATT PEACOCK: What sort of money are we talking about here?

JOHN WILLMAN: "Well, let's take one example: on Thursday, the European Central Bank and the Federal Reserve, the US central bank, arranged a 50 billion dollar swap facility in Euros for the Europeans and dollars for the Americans, so that payments between the two can flow smoothly, even if there are temporary dislocations at either end."

MATT PEACOCK: Of course, the start of the week will be the real test, though, won't it?

JOHN WILLMAN: "That's what everybody's saying, the start of the week is the real test - or whenever the US security markets open, because then people really are going to have to look at what they've got, they might find that they do have positions they haven't closed, and also you may have a big onslaught if the markets go up in a big way, or down in a big way, people may be left short of stock, or big positions could open that could cause dislocation.

HAMISH ROBERTSON: Banking Editor of the Financial Times, John Willman.